Indirect tax administration will become more and more reliant on automation and technology if businesses are to keep up with the worldwide digitalization drive.
To pass international audits for indirect tax compliance, companies must drastically boost their utilization of technology, according to tax directors.
Technology should be a top focus for businesses, according to Nora Bafrouri, assistant director for EMEA indirect tax at manufacturing giant Trane Technologies in Brussels.
According to Bafrouri, who believes that indirect tax tasks will soon be completely digitalized, the indirect tax function does not have a future without technology.
For the purposes of stronger enforcement and more compliance, tax authorities around the world are increasing the digitalization requirements that apply to enterprises. The increased compliance load, according to a tax specialist at a large multinational in Dubai, has made it even more necessary for businesses to employ automation solutions.
He claims that authorities are now much more stringent in their enforcement procedures and frequently request a significant amount of verified transaction-level data in a brief period of time.
"Technology is not a nice to have, but a must have now," he continues.
Automation, according to a tax director at a major mining firm in London, helps tax departments and businesses achieve their goals.
According to him, "technology sits alongside things such as company policies, control frameworks, defined business processes, and controls in impacting indirect tax management."
The indirect tax lifetime is supported by these three pillars: Advisory and planning, tax determination, and compliance
The first pillar entails analyzing laws and regulations while making sure they are correctly applied to business transactions. The second pillar focuses on giving all company undertakings on internal processes, including ERP systems, the proper tax treatment.
"The second part means that it’s really important to make sure that we bill our customers correctly, otherwise we don’t get paid," adds Bafrouri.
The third pillar's major goal is to make sure that all transactions are reported promptly and in accordance with applicable laws.
Technology plays a crucial role in managing all three aspects of the tax lifecycle, according to Alex Bunnett, associate product manager at Thomson Reuters UK.
Each of these three sectors can benefit from technology in a different way, according to Bunnett.
He claims that there are research-based tools that assist in alerting tax teams to impending regulatory changes.
These are especially useful for multinational corporations since they lessen the strain of compliance and make sure they keep up with it.
They also accomplish this by releasing tax employees from having to monitor numerous regulatory changes in several jurisdictions and allowing them to concentrate on work that adds more value.
Systems that assist in automating legislative changes and applying such changes to each transaction in real time are currently advantageous to some businesses.
According to Bunnett, businesses can use technology to automate the consolidation and transmission of data to tax authorities while simultaneously streamlining their internal operations. This is crucial because governments all around the world are implementing real-time reporting and e-invoicing regulations.
"If you can achieve this then you’re well on your way to effectively using technology to manage the tax lifecycle," according to Bunnett.
However, not many businesses have had the good fortune to have enough funding to make technology investments.
There seems to be a gulf between wealthy, powerful international organizations and their less resourceful competitors. Due to this, some organizations are moving quickly to fully automate their tax-related processes, while others are attempting to build a patchwork of different solutions.
A mining director in London adds, "Some businesses have also rationalised technology from having lots of different ERP systems to just a single one."
Additionally, businesses have been able to integrate their indirect tax operations from beginning to end by using tax compliance software.
He continues, "there’s a relatively small number of those [businesses] that have achieved this [full automation] in my experience."
On the other hand, less well-resourced businesses have attempted to address their difficulties with tax compliance through a variety of tactical methods in various nations.
These have included the integration of a variety of technologies into ERP systems, such as tax engines, robotic process automation tools (software that automates high-volume, repetitive processes), custom invoicing tools, and accounting software solutions.
The misalignment of national legislation across several jurisdictions is another issue that encourages businesses to use diverse technologies.
This frequently requires businesses to use a variety of technologies to satisfy varied compliance needs.
The chance that important personnel will leave a skills gap when they move employers is one drawback of having too many customized systems in several nations.
However, the cost of purchasing the necessary labor and technology to run these systems is high. It frequently necessitates large capital investments from businesses.
Businesses are being forced to make some difficult decisions concerning compliance due to the growth of automation.
Even while some businesses might not have enough resources to invest in both automation and staff training, everyone would agree that using manual inputs carries a high risk of human error.
To acquire access to funds for automation solutions, tax professionals need to present a compelling business case to their top management.
According to Bafrouri, this necessitates that tax professionals properly redefine indirect tax as a value-added activity rather than restricting it to merely compliance.
This entails collaborating with other business divisions to support them as they develop their goods or services or as they enter new markets. Additionally, it entails assisting other teams in streamlining their cash flows.
According to her, indirect tax is not always about risk management or complying with VAT.
"If we gain credibility [with other teams], we can then try to build a strong case for our sector being a value-added function for the business," according to Bafrouri.
Requests for extra technology investment can be seen more favorably thanks to this strategy of working with other teams that benefits both parties, improving the likelihood of receiving senior management approval.
There is no denying that technology and automation significantly ease the burden of compliance for organizations. However, there are steps tax experts can take to present indirect tax as a value-added service.
This strategy might make it easier for tax teams to get funding for major technical investments throughout the tax compliance process. Many businesses can benefit from this.
By fLEXI tEAM